Summary of Key Points
Junlebao has submitted an application for a Hong Kong stock IPO, while Aoyou’s stock price has reached a six-year high. These two seemingly unrelated events actually reflect the entry of China’s dairy industry into an era of competitive market sharing: the overall industry growth rate has slowed down (an average of only 2.8% per year over the next five years), and the decrease in newborns has led to a shrinking market for infant formula. Companies must shift from competing for existing market share to striving to gain new customers. Junlebao is going public with high debt, betting on the low-temperature liquid milk segment; Aoyou, on the other hand, is relying on its overseas goat milk powder business to drive growth and compensate for declining domestic sales. Although their approaches differ, the underlying strategy is the same: using existing resources to offset the pressures of stagnating industry growth and seeking new sources of revenue.
Industry Transformation: From a Booming Market to Intense Competition
In the past, China’s dairy industry was an incremental market, where the market size expanded annually, allowing companies to profit by simply following the industry trend. However, things have changed:
- Growth Stagnation: The industry is expected to grow at only 2.8% per year over the next five years, with milk production increasing by just 0.3% in 2025, virtually no growth at all.
- Cooling Infant Formula Market: The number of newborns is declining, making consumers more selective and reducing the demand for infant formula, thus eroding this once-profitable market segment.
- Intensifying Competitive Market Sharing: With the market size not expanding, companies are forced to compete directly for customers. For example, Yili and Mengniu use their channel advantages to squeeze out smaller brands, and niche markets like goat milk powder also face growth limitations.
In simple terms, while everyone could once share in the industry’s profits, now companies must fight over a shrinking pie.
Junlebao: Going Public with High Debt, Betting on Low-Temperature Milk
Junlebao’s financial numbers appear impressive: revenue of 19.8 billion yuan (third in the industry) and net profit of 1.16 billion yuan in 2024. However, there are significant issues:
- Lack of Funds: As of September 2025, its total debt amounts to 17.5 billion yuan, with a debt-to-asset ratio of 77% (16% higher than Yili’s and 25% higher than Mengniu’s). It only has 1.3 billion yuan in cash but needs to repay 3.5 billion yuan in short-term loans.
- Divergence between Dividends and Fundraising: Over the past three years, it has distributed 2.6 billion yuan in dividends (nearly 90% of net profit), giving a large portion to existing shareholders, while now it needs to raise funds through an IPO to improve its cash flow. This move has raised doubts among investors.
- Bet on Low-Temperature Milk: Junlebao is focusing on low-temperature fresh milk products like “Yue Xian Hua,” which have a growth rate of 7.2% (far higher than the 0.4% for regular milk). It claims to have the highest proportion of own milk sources (66%). However, there are controversies: its “Yue Xian Hua” products use ultra-fast sterilization technology but are labeled as pasteurized milk, raising compliance concerns. Additionally, Yili and Mengniu may not easily allow Junlebao to enter this market, and the speed at which these giants respond will determine how long Junlebao can maintain its position.
Junlebo’s IPO is not about telling a growth story; it is a necessary move to boost cash flow, provide exit options for investors like Sequoia and Hillhouse Capital, and avoid being marginalized by Yili and Mengniu. It is essentially a gamble: trying to establish a sustainable business in the low-temperature milk segment before the giants can respond.
Aoyou: Overseas Goat Milk Powder as a Rescue Strategy, but Domestic Share Losses
Aoyou’s story focuses on international expansion: Its overseas revenue increased by 65.7% in the first half of 2025, with its Jia Bei Ai Te product becoming the best-selling goat milk powder on Amazon in the United States. However, upon closer inspection:
- Declining Domestic Market Share: Aoyou’s domestic sales are actually declining, and its overall growth relies entirely on overseas markets.
- Limited Growth Potential for Goat Milk Powder: Although Aoyou holds a 60% global market share in goat milk powder, the total market size is much smaller than that of cow milk powder, making it difficult to achieve the same scale as Feihe.
- Challenges in Overseas Expansion: The overseas market is dominated by giants like Nestle and Danone, with complex distribution networks. Aoyou needs to invest heavily in building factories and purchasing raw materials (e.g., acquiring a Dutch factory) while also managing exchange rate and local regulatory risks.
Aoyou’s strategy is to optimize its goat milk powder products globally and expand into related categories (such as goat cheese and special medical foods). However, this path requires time and capital, and it remains uncertain whether it can become a significant source of revenue.
Common Challenges in the Competitive Market Era: Tight Finances and the Need for Sustainable Growth Engines
Despite their different approaches, both companies face similar challenges:
- Financial Pressure: Junlebao’s high debt and Aoyou’s need for continuous overseas investment require substantial funding.
- Sustainability of Growth Engines: Can Junlebo’s low-temperature milk products withstand competition from giants? Can Aoyou’s goat milk powder business break through market limitations?
- Matching Stories with Performance: Both companies are promoting new initiatives (Junlebao’s technology, Aoyou’s overseas expansion), but investors need to see concrete results. Hong Kong stock investors are particularly sensitive to companies’ reliance on a single product category, and Aoyou’s overseas growth must be supported by sustained performance.
The real test for these companies is not just their current IPO or annual financial reports, but whether they can turn their “stories” into actual growth over the next three to five years, proving their ability to survive and thrive in a competitive market with limited resources.
Conclusion
China’s dairy industry has moved from an era of growth to one of intense market competition. Junlebao and Aoyou are typical examples of this transition: one is betting on niche segments, while the other is targeting overseas markets. Both approaches are challenging, but they represent the inevitable choices companies must make when the market size is no longer expanding. Time will reveal which company can develop sustainable growth engines and establish a solid foothold in this competitive environment.